July 14th, 2019
Spending Money in Retirement
Some of you will have heard me talk about the three phases of retirement. What I call the GO-GO Years, the SLO-GO Years, and finally, if you make it that far, the No-GO Years.
There are going to be valid reasons to want to spend more money right after you retire. At the same time, you’re probably going to start being far more conscious about the money you do spend.
If you’ve completely left the workforce, the opportunities to start generating new income are significantly less, though very possible. To some extent, it depends on what you were doing before ‘retirement’ and what you want to find yourself doing after ‘retirement”.
If you were an airline pilot, chances are you’re no longer going to work for a recognizable airline. On the other hand, if you were in private practice like me, you can simply slow down and no longer pretend to work 70-80 hours per week.
There’s a crazy bridge to cross that won’t likely appear until your journey is almost over. That bridge is realizing, once you’ve reached your NO-GO years, that you were far too frugal. You should have listened to your spouse when he/she insisted on taking that world cruise some 20 years ago. Or whatever it was you wanted to do but didn’t because you were afraid of spending all that money.
The money gurus in the world, in order to get our attention, always talk about return on investment. What they tend to overlook is the return on life; ie you have a finite amount left and if you don’t use it to satisfy yourself and the ones you love, you may find it’s too late.
My wife and I are now moving toward the SLO-GO years, me more than her. I no longer have any interest in getting on an airplane and being cramped in a tiny seat for many hours. I suppose I could upgrade to first class but I’m not yet ready to do that. I’ve always wanted to go to New Zealand but that’s not going to happen.
What I’m trying to tell you is that if you’ve been able to accumulate a significant nest egg and have it positioned the way you want it, having done lots of homework, then spending money to satisfy the items on your bucket list is OK. You may not get a second chance.
The dilemma again rears it’s ugly head when you next hear me tell you that in all probability your NO-GO years could be very expensive. That’s assuming you live to achieve NO-GO status. The SLO-GO years are probably less expensive. That’s when you’re coming to terms with your mortality and that alone causes you to downsize your house, your car, and whatever else there is.
The big new financial challenge is the cost of healthcare. Not regular medical issues; that’s covered by Medicare and Medicare supplement insurance. What I’m talking about is Long Term Care. That can become debilitating. My father had a serious heart attack and died at 72 while in his GO-GO years. I then learned my mother, five years older than my father, had already been diagnosed with early stage Alzheimer’s. Everything they had was quickly used up and only then did Medicaid foot most of the bill.
There are ways today to leverage existing assets to cover some of the cost of Long Term Care, but you need to approach it before retirement, or at least soon after. Not after the wheels come off.
Despite my being a financial planner and investment advisor, it was beyond my parents ability to talk about much of this with their only child. They’d grown up in households where children were seen and not heard. This meant I had very little role in helping them make plans for their financial future. Oh, wait. I did help them purchase a Medicare supplement plan
Today, I’m doing my best to keep our children informed. Because we both trust them implicitly, I’m slowly bringing them into the loop. It makes them uncomfortable, but it’s a conversation every parent should have with their children at some point.
None of us have any real clue how our lives are going to play out. When it comes to spending money in retirement, you have two basic options. Have more money going in or find ways to make it cost less. In the meantime, do the best you can and don’t hesitate to have conversations about this with your children.
Tony Kendzior, CLU, ChFC
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